Iron ore prices will fall more than 10 per cent to be about $US60 per tonne next year, partly driven by increased scrap metal availability, according to Citigroup Asia commodities strategist Tracy Liao.
Iron ore prices will fall more than 10 per cent to be about $US60 per tonne next year, partly driven by increased scrap metal availability, according to Citigroup Asia commodities strategist Tracy Liao.
The price would be expected to remain around $US66 for this year, however, despite a big inventory build up at Chinese ports, Ms Liao said, speaking yesterday at the Global Iron Ore & Steel Forecast Conference.
About 80 per cent of around 200 million tonnes of iron ore storage capacity was currently being used, she said.
Ms Liao told the conference the ongoing divergence of prices between low grade and high grade prices was expected to continue.
That recent particularly affected miners such as Fortescue Metals Group, which has sealed contracts in recent months at discounts of more than 30 per cent against the index price of ore, according to its most recent quarterly report.
The main reason was continued environmental regulation of the steel industry by the Chinese government, which was encouraging use of higher-grade ores.
“The (price) differentials actually move alongside the benchmark iron ore prices,” Ms Liao said.
“There could be a structural change of steel mill’s preference over (higher grade) ores.”
Overall Chinese demand for steel would be strong, however.
She said Citi expected soft demand for infrastructure uses of steel, driven by problems with financing for local governments, although the bank was much more positive about potential in the real estate market.
Supply side reform in the sector in the past two years had meant margins for Chinese steelmakers were much stronger and utilisation was higher, Ms Liao said.
China produces about a 830mt of steel a year.
Broader forces
BHP Billiton WA Iron Ore boss Edgar Basto said although he anticipated iron ore demand would moderate, there would be new opportunities on the horizon.
“We expect the growth rate (of iron ore demand) out to 2026 to nearly halve from the last decade, from 3.1 per cent per annum to 1.7 per cent, as Chinese growth moderates,” he said.
China’s belt and road initiative, which was driving infrastructure investment across Asia, had potential to drive demand.
“We estimate (belt and road will create) an additional 150 million tonnes of steel demand, placing China in a prime position as supplier, as only 10 of the 68 countries are net steel exporters,” Mr Basto said.
“While demand in emerging Asia is likely to be partially met by Chinese steel exports, it has also incentivised the rapid development of new local steelmaking capacities.
“In Asean alone, there is about 20 million tonnes per annum of blast furnace capacity being initiated or built.”
